Important changes to the child tax credit
- The amount has increased for certain taxpayers
- It is fully refundable (meaning you can receive it even if you don’t owe the IRS)
- It may be partially received in monthly payments beginning in July 2021
Though these tax changes are temporary and only apply to the 2021 tax year, they may present important cash flow and financial planning opportunities today.
An Overview of Changes to the Child Tax Credit
You (and your spouse if you file a joint tax return) must have the following to qualify for the child tax credit:
- Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool
- A qualifying child who is under age 18 at the end of 2021
- Income less than certain limits (described in ‘How Much to Expect’)
How much to expect
Most families will receive the full amount: $3,600 per child under age 6 and $3,000 per child ages 6 to 17. The IRS will automatically send qualifying families 50% of their Child Tax Credit in monthly payments of $300 or $250 per child, respectively). These following people qualify for the full 2021 Child Tax Credit:
- Married couples with income under $150,000
- Head of Household families with income under $112,500
- Everyone else with income under $75,000
Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law ($2,000 per qualifying child), but may also choose to receive monthly payments.
What else should you know?
- The new law raised the age of ‘qualifying children’ to 17 from 16.
- The IRS will pay half of the credit in the form of advance monthly payments beginning July 15. Taxpayers will then claim the other half when they file their 2021 income tax return.
- You can opt out of the advance monthly payments for any reason.
- These changes are temporary and only apply to the 2021 tax year.
Tax planning to avoid surprises
The monthly advance of the child tax credit is another significant change. The credit is normally part of your income tax return & would reduce your tax liability. The choice to have the child tax credit advanced will affect your refund (or amount due) when you file your next return. To avoid any surprises, please contact us or schedule a tax planning meeting online.
The IRS’s Update Portal & What to Expect
Using the IRS’s child tax credit and update portal (https://www.irs.gov/credits-deductions/child-tax-credit-update-portal ) is fairly straight forward (we’re parents, too!). It takes about 5-15 minutes for first-time users to create an ID.me profile and update any information to reflect changes in filing status or number of children. We recommend using your mobile device. Parents may also use the online portal to ‘elect out’ of the advance payments or to check on the status of payments.
The IRS also has a non-filer portal (https://www.irs.gov/credits-deductions/child-tax-credit-non-filer-sign-up-tool) to use for certain situations. Check with us before using this.
Let Centennial Tax & Accounting Help You
With any tax law change, it’s important to revisit your full financial roadmap. We can help you determine how much credit you may be entitled to and whether advance payments are appropriate. How you choose to receive the credit – partially advanced via monthly payments or as a lump sum on your next year’s return – could have many impacts to your financial plans.